The market is having a horrid day to finish the week – down 160. The Futures suggested a 110 point fall in the market this morning.

Dow down 214. It dropped from the open and was down 228 at its worst. 6th fall on the trot. Haven’t done that since November. S&P 500 went below the “Black Tuesday” low on January 22nd. Similar story to our market overnight – retailers and financials leading the decline. Yield spreads on some mortgage backed securities blew out to 22 year highs relative to Treasury bonds. The UBS Strategist said the mortgage market has become “utterly unhinged”. The Carlyle mortgage bond fund and the Thorburn Mortgage fund (down 51%) missed a margin call and got a default notice. Concerns that the Fed action whilst maintaining the integrity of the money markets will not avoid the impact of the credit crunch for individual corporates. Retail sector fell a huge 4% and there was a bit of nervousness ahead of tonight’s jobs numbers. Oil price hit a record US$105.57. The US dollar hit another record low against the Euro as the European Central bank said there is “strong upward pressure on inflation” – in other words they will not be cutting interest rates.

Yep… it’s a Bear market.

  • Both BHP and RIO down in ADR form overnight, 1.2% and 0.15% respectively.
  • Metals mostly down overnight – Both Nickel and Copper closed down 1.5%, Zinc fell 4.3% and Aluminium was up 0.1%.
  • Oil price up $1.06 to $105.51 after OPEC signaled yesterday it would not be increasing supply anytime soon and $US hit an another low against the Euro.
  • Gold down $11.40 to $977.10
  • Bonds up with the 10 year yield down to 3.59%.

AFG – “Allco Principals raise the White Flag” – The National Australia Bank took control of David Coe’s stake in AFG – 14% worth around $33.2m – as collateral for unpaid shares. The general comment is that AFG and related entities are going to the wall. The NAB will have to take a provision of up to $110m against the loss on the loan to the company the Directors used to buy shares, a company now going into voluntary liquidation. AFG down 15c to 48c.

In the news today…

  • Talk is ABC Learning’s $1.62bn loan will be repriced upwards after the 60% sale of its US businesses to Morgan Stanley Private Equity. Its lenders – CBA, NAB and WBC – have to approve the sale and approval is likely to be dependent on getting a higher margin for the loan. ABS been a bit all over the place today, down 15% to 148c.
  • Macquarie Capital Alliance Group (MCQ) has completed its buy back. Purchased 17.1m shares at an average price of 292c. Were’s maintain their HOLD recommendation and 351c target price. MCQ down 4.3% to 241c.
  • Macquarie Group (MQG) has acquired Allegiance Investment Management whose headquarters are in Orange County, California and manages around $US4.5bn in fixed-income products. No price was mentioned. Citigroup upped their recommendation to BUY from SELL. MQG down 3% to 4543c.
  • JP Morgan upped its recommendation on Nufarm (NUF) to OVERWEIGHT from NEUTRAL with a 1670c target price. They say the acquisitions this week are “strategically sound”. NUF down 2% to 1507c.
  • Cabcharge Australia (CAB) announced it is no longer interested in acquiring Suburban Transport Services. CAB down 2c to 973c.
  • Red Hill Iron (RHI) increased its iron ore resources to 350m tones from a previously estimated 135m tons. RHI up 22.5% to 600c.
  • Citigroup still confident Lachlan Murdoch can privatise Consolidated Media Holdings (CMJ) despite his US backer pulling out yesterday. CMJ down 10.9% to 383c.
  • Fortescue Metals’ (FMG) Andrew Forrest was named Australia’s richest man by Forbes after a 149% rise in FMG’s share price in the past year. FMG down 13c to 815c.
  • Woolworths holding its own during a tough market. Only 11% off its all time high and still trades on a 2008 PER of 23x and 20x for 2009. People need to eat, seen as a defensive stock. WOW down 3.9% to 2886c.
  • Boart Longyear (BLY) has a strong session yesterday – up 14% – had a good set of results, well ahead of prospectus. BLY down 7.3% today to 177c.
  • ASX Ltd (ASX) down around 5% after losing another 4% yesterday – according to Were’s the stock is trading on a 2008 PER of 24x. Currently at 3615c, same price it was in November 2006. ASX down another 5.5% to a new low of 3412c.
  • Seven Network (SEV) – Talk is that David Leckie is going to step down and two contenders are being considered for the job. SEV down 6c to 1069c.
  • There has been a bit of a rebalancing to the indexes by index compiler Standard & Poors. See the newsletter for the ins and outs.

In the MARCUS TODAY newsletter today we have an article called “5 Day Crash” which looks at how some of my broker colleagues are trading in a bear market. We also have all the usual PEs and YIELDS on the ASX 200 and a lot more of the stories and research and ideas doing the rounds.

For a FREE TRIAL OF THE MARCUS TODAY NEWSLETTER click here

Peter Fray

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